Teji Mandi - Axis Bank: What's cooking behind the doors?

Subtitle: Axis Bank's earnings result is a major indication of the rot that the Indian banks are staring at. The bank reported a loss, despite a 17% YoY growth in operating profits.

Axis has had to increase its provisions by 2.8x YoY to Rs 7,730 crore in a quarter. These provisions are made for bad loans and as a contingency for the Covid-19 impact over the coming year.

The cumulative provisions now stand at 1.3% of the loans for disbursed by the bank. The ‘below investment grade’ book has also increased by 20bps QoQ to 1.1% of loans while credit cost is likely to shoot up in the coming quarters, impacting the net interest margin of the bank.

Key takeaway:

An increased retail portfolio, as a part of the overall loan mix, has helped Axis bank improve its asset quality over the last couple of years. However, the corporate loan book continues to remain a major pain point. In the last quarter, net slippage was high at 3% of loans with the majority of contributions coming from the corporate segment.

The management has also indicated that ~25% of loans have opted for the shutdown induced moratorium facility. Axis Bank’s corporate portfolio is expected to remain under constant watch for further slippages.